Everyone goes into debt at some point. From students to local government, we all at some time need to take money out to cover the costs.
If you have a few debts to pay off, it could be worth consolidating them into one loan. Consolidation loans can be useful if you are struggling to keep track of where your repayments need to go.
With a consolidation loan, you borrow enough money to pay off everything using a loan from one lender, meaning you can merge it all into one debt rather than lots of different ones. This could be a good option if you’d like to organise your monthly repayments so that you just owe one loan provider.
Are you wondering where to begin? To start the debt consolidation process, follow these steps.
Step one: Assess what you have
Before you can start the consolidation process, it’s worth assessing what you already owe. This gives you the opportunity to think about how much you will need to pay it all off and to shop around for loan providers that can meet that amount. Also, this is the point where you decide if you want the loan to consolidate all or just some of your existing debts.
Whichever consolidation loan provider you opt for, you need to make sure that you can afford the repayments. This type of loan tends to have longer repayment schedules, which is good because the amount you pay back each month will be a reasonable amount, but this longer repayment time also may mean you’re paying more interest.
Step two: Plan for the future
It’s also worth thinking ahead before you commit. Is there likely to be anything that could stop you from keeping up with the repayments? For example, are you thinking of consolidating just as you’re about to welcome a new baby to the family? Is your job secure?
Step three: Check your report
As with any application for a loan, your credit score could be negatively affected as you are actively seeking to take out more credit. If your score is poor or you want to find out what your rating is before you start the consolidation process, there are ways to get free and reasonably priced credit reports. These will detail what your rating is and there is no limit to how many times you could take a look at your score.
One of the main benefits of taking out a consolidation loan is that, by showing that you’ve fully paid off lingering debts that were originally affecting your rating, you’re balancing out the outstanding credit. As long as you continue to make your monthly repayments on time, you can enhance your credit rating and ensure your credit scores are positive.
Once you have worked out who the best provider is for you and that you’re sure you can meet the repayments, you’ll find that it is easier to keep track of one debt payment rather than lots of different ones.
Consolidating works when your finances cover paying it back. Consider your options carefully before making the commitment.